Cash flow statement is an integral part of financial statements of an entity. It represents the total changes in cash during the period. It is prepared and mandatory to show in the annual report of the any company. International Accounting Standard # 7 deals with the Statement of Cash flows and provides all necessary provisions for the preparation of cash flow statement.During the business process an entity receives number of cash payments and made payments for the services and material to the suppliers and creditors. These are recorded in the books of accounts and in the year end related data is presented in the statement of cash flows. Cash flows arise from different activities like operations, financing and investing. The cash flows generated from activities of entity are divided in three main categories of Operations, investments and Financing. Cash flows are reported accordingly in the cash flow statement.
The following table will make easier to understand the cash flows according to activity
Transaction Activity Type
Payment to employees operating activity
Purchase of Raw materials operating activity
Cash sales operating
Purchase of plant and machine Investing activity
Acquisition of Vehicles Investing activity
Repayment of long term loan Financing Activity
Payments of dividends Financing Activity
Causes for changes in cash flows:
Cash inflows:
Decrease in assets
Increase in liabilities
Increase in Shareholder`s Equity
Cash outflows:
Increase in assets
Decrease in liabilities
Decrease in shareholder`s equity
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